Riddhi Siddhi Gluco Biols Ltd

Today the stock is down in 5% lower circuit at 423.6,

has it anything to do with the announcement of the

composite restructuring scheme.?

I doubt it. Most mid/small caps are down between 3-5%. BSE smallcap index is currently down 4.4%, so I think its an overall sell on the markets.

Thanks to all for the nize thread… Its very informative for the newbies like me …

Board Meet is postponed to 21st Dec. 2010.

Rgds.

Mahesh

Bad for sentiment. The 5% circuit is not helping either.

**

Yes Hitesh… The more the uncertainity period gets lengthened the more it will damage to the company’s share price.

A bad move by the management unless there is something planned in run-up to board meet which is highly unlikely.

Rgds.

Mahesh

Bad either.

**

The uncertainity period gets lengthened ONCE AGAIN.

“Withreference to the earlier announcement dated November 25, 2010 & December 08, 2010, regarding proposed re-structuring of Company, and meeting ofBoard of Directors of Company to be held on December 21, 2010, Riddhi Siddhi Gluco Biols Ltd has now informed BSE that the said meeting is rescheduled and now would be held on January 07, 2011.”

The only thing I can say is that this is the worst move by the management. I am in the process of writing a strong worded letter to MD as well as CS of the company… the letter will be couriered by friday.All theshareholders should also do the same.This will go a long way in improvingcompany’s investor-friendliness even ifwe don’t meet with success.

Rgds.
Mahesh

"Withreference ofBoard

Cargillrecently Announced the Acquisition of 85 % controlling stake inIndonesian Starch Derivatives Player Sorini Agro. The approximate reported deal size is INR 1350 cr. which entails to a valuation of almost 2.15x Salesfor Sorini. It is worthwhile to note here that Indian Starch Sector Leader Riddhi Siddhi Gluco Biols Ltd. has a similar topline as that reported by Sorini with EBITDA margins better than that reported by Sorini and is still trading at just 0.5x sales which depicts the gross undervaluation of Indian Starch & Starch Derivatives Sector.

ââââââââââââââ

Cargill Acquires Majority Stake in PT Sorini Agro Asia Corporindo Tbk

JAKARTA, Indonesia, Dec. 15, 2010 â Cargill announced today that it has entered into an agreement to purchase all of the ordinary shares of PT Sorini Agro Asia Corporindo Tbk (âSoriniâ) held by the majority shareholder PT AKR Corporindo Tbk (âAKRâ) at a price of IDR 3,500 per share. The transaction is subject to approval of AKRâs shareholders.

In a separate transaction, Cargill also is acquiringa block of ordinary shares of Sorini from UOB Kay Hian Pte Ltd at the same price per share. This transaction will complete at the same time as the purchase from AKR.

Both share purchase transactions combined will result in Cargill owning 85.01% of the ordinary shares of Sorini, at a combined purchase price of IDR 2,720 billion (approximately USD 300 million). Upon close of the transactions, Sorini will become a subsidiary of Cargill.

Indonesia-based Sorini is one of the worldâs leading producers and suppliers of sorbitol. The company operates seven manufacturing facilities located in Indonesiaâs East Java and Lampung provinces. Soriniâs product range comprises starch and starch derivative products including liquid and powder sorbitol, maltitol, dextrose monohydrate, maltose, and maltodextrine, all used in the production of consumer goods such as food and beverages, cosmetics and personal care, and pharmaceuticals.

âSorini is a business with an attractive asset footprint, a solid customer base, strong leadership and a broad product portfolio,â said Bram Klaeijsen, president and regional director, Cargill Asia-Pacific. âThis acquisition will be an anchor point for future growth of our food ingredients business in Asia, particularly in Indonesia and South East Asia.â

âThrough this acquisition we will gain manufacturing and supply capabilities in Indonesia, which will enable us to better serve customers in Indonesia as well as in other Asian and global export markets,â said Klaeijsen. âCustomers also will benefit from our expertise and leading position in the global starches and sweeteners industry including new product offerings, enhanced technology and application capabilities, as well as the supply chain and risk management capabilities we bring to the business.â

People will be a key factor in achieving business success. âWe greatly value Soriniâs talent,â said Klaeijsen. âThe team has demonstrated strong industry know-how, commitment to the future growth of the industry and leadership capabilities. We are confident that together, we can better serve customers and successfully drive profitable growth.â

âOverall, Sorini is an excellent fit with our existing operations, product portfolio and capabilities,â he said.

Haryanto Adikoesoemo, president director of PT AKR Corporindo Tbk, said, âAKRâs focus is now re-oriented towards energy, chemical distribution and logistics infrastructure business. This divestment will add value to our shareholders by enabling to reinvest the proceeds of the divestment in these focus businesses.â

âThe journey of Sorini from its beginnings to a world class company will continue under the stewardship of Cargill. Together with Cargill, Sorini can reach higher heights in the sorbitol, starch and starch sweetener business, and employees can enjoy further growth with the company,â he said.

âOn behalf of AKR, I thank the management and employees of Sorini for their dedication. We wish them well for their future with Cargill as the new majority owner of Sorini,â he said.

Following completion of the transaction with AKR, Cargill will make a mandatory tender offer to acquire the remaining shares of Sorini as mandated by Indonesian law.

Credit Suisse is the financial advisor to Cargill in relation to this acquisition.

i am following this conversation with interest. would like to see how it turns out finally. Don’t have much faith in management, and I can see many people over here have the same view. Luck would be a great factor for this scrip. Not my kind of “speculation”

Riddhi Siddhi Gluco Biols Ltd (RSGBL) has informed BSE that the Board of Directors of the Company at its meeting held on January 07, 2011, have approved the restructuring scheme in respect of Company.

Under the said scheme the manufacturing units of RSGBL at Viramgam, Gokak and Rudrapur would be transferred to its subsidiary Company M/s Riddhi Siddhi Corn Processing Private Limited (RSCPPL). Roquette Freres intends making an investment to acquire majority stake of RSGBL in RSCPPL, with further option to buy all the shares held by RSGBL in RSCPPL, and as part of the Scheme RSGBL will reduce it’s paid up capital to the extent of shares held by Roquette Freres (around 14.93% of the present paid up equity). This is subject to approval of the Shareholders, Creditors and concerned authorities.

What does it mean for the minority shareholders of the company? I guess there would be no open offer since Roquette would be acquiring stake in the company’s “subsidiary” and then it will depend upon the management how they deal with all the cash they get out of the foreign firm.

On 7th January 2011, Starch Sector leader Riddhi Siddhi Gluco announced board approval for a restructuing exercise wherein it is transferring all its running plants into a subsidiary and World’s 3rd** largest cornstarch player Roquette is taking a majority stake in it** with an option to buy 100 % of the subsidiary in future.

We will first briefly study the impact of this development on Indian Starch & Starch derivatives sector and then consider the impact on the company viz., Riddhi Siddhi Gluco Biols Ltd.

Impact on the Sector â Extremely Positive :

The deal is an important milestone for Indian Starch & Starch Derivatives sector since it marks an entry of a big MNC into Indian landscape and that too in a big way by expensing almost 1000 odd cr. (How 1000 cr.?–The details of it can be found later). Future is bound to see hightened M&A activitiy in the sector as after China, India is the hottest destination to house apetite of MNCs like Roquette, CPI and Cargill as Chinese govt. has recently decided to go slow on fresh investments into the sector becuase of higher than expected corn usage by the industry. CPI has already acquired its small presence in India by worldwide acquisition of Akzo’s starch business which is having a small unit in India… Post big entry of Roquette via acquistion of Riddhi’s business, CPI and Cargill will start looking at India more seriously than before.

Impact on the Company â Overall Positive :

Apart from the sector, the acquistion news is a sort of mixed news for Riddhi Siddhi Gluco since its exit from the booming Starch sector paints a negative shade but since eventually company is likely to have a cash per share of Rs. 754 in the Balace Sheet because of this deal which translates into a premium of around 94 % to the company’s closing price on Friday, 7th Jan 2011, the effect of negative shade of the news gets completely nullified and infact brings a positive shade to the entire deal for the company. How, let’s understand below :

(1) Riddhi will sell all its running plants … diluting 51 % stake at present and remaining 49 % most likely in FY12. Enterpise value applied to all the plants by Roquette has to be around Rs. 1100-1200 cr. going by the norms set out by acquisitions done in the sector in last 2 years at 1.2-1.3 times topline.

(2) Hence, if we deduct 15 % stake out of 1100 cr. val. which is the stake owned by Roquette in parent co., the realisable value comes to 935 cr.

(3) Now, if we deduct 210-220 cr. odd debt which Riddhi has in its Balance Sheet and even don’t include cash generated by the company at net level of around 60-70 + cr. in the first 9 months since at present all plants are under Riddhi, then also minimum realisable value for the co. out of the deal after deducting debt works out to be 935-220 = 715 cr.

(4) Now, after reducing the equity of the parent co. as per the scheme announced, the equity capital will be 9.48 cr. which means out of this deal the company will have per share cash at Rs. 754 eventually… which entails to a 94 % premium to current market price of Rs. 387.

Now giving my take on the stock :

All said, the deal is fair and is beneficial for current shareholders as even a shareholder who has picked up the share at all time high price of Rs. 518, the co. will eventually have more cash per share than that in its Balance Sheet. The only negative is co.'s exit out of starch business which is not a good thing but if the co. can get the cash talked about then the negative gets nullified.

Its a good news for Riddhi shareholders but a great news for the sector…

There seem to be a few queries in the above assumptions:

1). Is the amount of 1100-1200 crores finalised between the two parties?

2). Has the management of Riddhi indicated what they will do with the cash? Bcos if they start building windmills and other power related projects, then it could be money down the drain for the minority shareholders.

3). Since the money would come to the subsidiary which in turn will be controlled by the promoters, it remains to be seen what they do with the loads of money(assuming they do get 1100-1200 crores from the deal) they get.

According to me best thing to have been done would have been for the promoters to sell their whole stake to rocquette and then let them make an open offer for the rest from the remaining investors. That would have been the most transparent way of doing things rather than forming subsidiaries and complicating things.

Below are my replies in bold :

1).

Not Indicated… It is calculated based on the val. given by taking the precedents of all the acquisitions done in the sector in past 2 years…

2).

No… they have not indicated as it is quite premature since the deal is still few months away… but I think solar power will be the natural progession considering gujarat’s current interest in solar power as also md’s interview given before few months…

3).

The money i.e. cash will come to listed co. and not subs.

I agree… but I think this deal is structured to suit Roquette who was unwilling to make open offer… but while customising the deal in favour of Roquette whether management has extracted a good deal for minority shareholders or not that remains to be seen… it depends on the amt. of cash the listed co. will get…

hit bhai please have a look at this :

http://www.italkcash.com/forum/news-feeds/250756-q2fy11-likely-numbers-deal-roquette-management-meet-note-riddhi-siddhi-oct-10-a.html

Takeaways from the Management-Meet of Riddhi Siddhi Gluco Biols Ltd.** Oct.10**

Present Relationship with Roquette Freres, world’s 3rd largest CornStarch Player, and likely Future Direction of Such Relationship post-transfer of all of the company’s running Plants into a Wholly Owned Subsidiary :

Current Relationship with Roquette is helping company immensely in terms of Upgradation of Technology, Upgradation of Process Parameters and Maintaining International Product Standards. Company is actively exploring strentghning of relationship with Roquette in a different way and for this, it has recently formed a wholly owned subsidiary in which all the running-plants of the company will get transferred which will pave the way for an active joint venture with Roquette. In all possibilities, promoters will not give the full control of the subsidiary company. The discussions are still on regarding the valuation as well as the percentage of holding for the French Company (Roquette) in the subsidiary company and it is expected to be finalised before the end of this calendar year (December 2010).

The main reason for pushing hard for strentghning of relationship with Roquette is French Company’s worldwide leadership in Polyols segment and Riddhi sees Polyols as holding tremendous potential for India as India is one of the world’s largest diabetic centre and there are hardly few quality manufacturers of Polyols in India. If Roquette agrees to bring Polyols product to India jointly with Riddhi then it could be a game changer for Riddhi. Riddhi management is working hard to enter into & inroducing Polyols product in FY11 itself and future high-margin-sustainability of the company will largely depend upon how soon it is able to enter polyols segment.

**Details of Foray into Power Sector :
**
Company plans to set-up 30-33 MW windmills at Tirunelveli (TN), Pachav (Gujarat) & Satara (Maharastra). Planned Investment in this project is around Rs. 250 cr. which will be raised via 75% debt and the rest from internal accruals. There are no present plans of setting up a SPV for this project and it will be directly under Riddhi Siddhi Gluco banner. Project is likely to be commisioned by March 2011. Vestas and Shriram EPC are the likely suppliers for the project and agreement is to be structured in such a way that suppliers will do the entire job including acquisiton of land, erection, maintenance and agreement with local SEBs. The net return on the project is expected to be around 12% and after deducting the interest cost of 8%, company should get around 3 to 4% returns without much work and land bank also gets appreciated in future.

This foray is meant for de-risking purpose and tax-saving purpose. Company wants to retain most of the robust cash likely to get generated out of the main business of the company to fuel future growth and for that it is foraying into power sector. Management’s contention is that although power project is likely to add only 25 cr. to the topline but the advantage for the company is that 80 % of 200 to 250 cr. investment that they will do in this project can be claimed back as depreciation. So, it is like, company is not paying the tax to the Government now and utilising that money for some investment which will start generating revenues immediately. By the time company is compelled to start making the tax payment, the new business would have generated enough revenues plus the assets. Company is adopting a shrewd policy to emerge as one of the most consistent as well as fastest growing Mid-Cap Company of India.

Hi

Something seems to be wrong in the story somewhere. Markets cant be so stupid as to keep on punishing the stock as it is doing with two continuous down circuits of 10% each.

Now I think markets will be treating Riddhi Siddhi as a holding company and in various holding companies, I have seen holding companies trade at a discount of around 60% to its actual value. Most recently I had a look at Balmer Lawrie Investments Ltd and it actually trades at a 60% discount to its holding value in Balmer Lawrie-- which again has more than 25% of its market cap as cash in its balance sheet. Plus Balmer Lawrie also has a lot of sectors which can show good growth, plus a hefty dividend yield.

Another example is Bajaj Holdings which again trades at a discount of close to 50% to its holding value.

In effect now Riddhi Siddhi becomes a solar power company with holding in corn starch company whose majority control is with a foreign player. I guess this becomes too much to digest for the retail investor and hence people seem to be dumping the stock in real earnest and since there is total lack of clarity on the deal, no one is ready to buy the stock which results in reverse circuits.

**I think management is responsible for this state of affairs because they need to communicate the exact contours of the deal to the investors. **

The valuation premise of 760 per share or so is based on probable valuation of the deal at around 1100-1200 crores and even if it comes through at that valuation, one needs to see how the holding company discount plays out.

hit bhai ,are you still holding ?or are you out?

would you recommend booking loss or wait till some clear picture emerge?

by the way where is donaldji? long time no post.

Hi Hitesh,

Based on the mgmt interview on CNBC, the deal has been done at an EV value of 1250 Cr…and post adjustments like tax etc cash of about 850-900/share should come to the listed entity.

After the complete takeover by French co, the listed entity will not have the existing starch business. They have made a decent entry in Power sector and have plans to go into warehousing, agrichemicals etc.

Even if we do a conservative cash accrual of 750-800/share to the listed entity, I think the CMP of abt 300 is a considerable discount. Unlike holding cos like - Balmer Lawrie, Bajaj Holding etc, this is not a holding co. They are holding cos where value unlocking is highly improbable.

May be markets are worried caus of bad experience in earlier deals like - Indo Asian, Gwalior Chem etc. Also, it will take atleast 9mths to 1 yr for the Riddhi’s deal to get completed.

Lets see how things shape up.

Regards,

Ayush

I agree with Ayush… there is no point in pressing a panic button since in the interview MD has confirmed an EV of 1250 cr… The main point of concern now is the cash the listed co. will recieve and this is the area where because of management’s silence, the markets are finding something fishy…